QPR Software Plc QPR Software Plc Annual Report 2014 Annual Report 2014

Transcription

1 QPR QPR Software Software Plc Plc Annual Report 2014 Annual Report 2014

2 Index Year 2014 Key events 1 Our strategy and its execution 2 Review by the CEO 3 Board of Directors 4 Executive Management Team 6 Report of the Board of Directors Financial Statements Auditor s Report 46 Information for Shareholders 47 Our customers and partners on QPR 49 Recognitions in industry analyst reports 49 Contact information 50 QPR Software focuses on providing organizations with software and professional services for operational development. Our software and services are used in more than 50 countries. The Company offers its customers insight to their business operations through modeling, analysis and performance monitoring. This insight enables customers to streamline and improve business operations and to execute their strategies swiftly and effectively. The Company s product portfolio has been strongly renewed in recent years. The new software products offer customers innovative and efficient tools to model enterprise architecture, to automatically discover any processes based on actual event data and to analyze causes for potential performance problems.

3 2014 key events and strategy Year 2014 key events January March January: QPR releases new version of QPR Suite January: QPR releases new version of QPR ProcessAnalyzer software. February: Gartner Inc., the world s leading IT research and consulting company, ranks QPR Software in the best tier used in its report MarketScope for Enterprise Business Process Analysis, with the rating Positive. February: QPR resellers from almost 20 countries assemble to the annual Partner Summit. March: QPR Software and Tieto, the largest Nordic IT services company, sing a cooperation agreement with the aim to offer customers business driven enterprise architecture services for gaining substantial business benefits. April June April: QPR Software s corporate performance management tool QPR Metrics was rated as Facilitators in Nucleus Research Corporate Performance Management Technology Value Matrix. June: QPR Software announces at the IRMUK Business Process Management Conference in London the release of its new enhanced template supporting QPR Software s enterprise architecture based operational development methodology. July September July: QPR Software is included in the Hype Cycle for Business Process Management report published by Gartner Inc., the world s leading IT research and consulting company. August: QPR Software announced that it will deliver a process intelligence solution to a leading European manufacturing group with operations in approximately 30 countries and production in almost ten countries. August: Turkish Erdemir Group, one of the largest steel producers in the world and one of the largest industrial enterprises in Turkey, selects QPR Software and Ironman Consulting, QPR s reseller in Turkey, as solution providers for its strategic and individual performance management. September: QPR Software releases its enhanced template for enterprise architecture based operational development methodology. October December October: The world s leading IT research and consulting company, publishes its report Magic Quadrant for Enterprise Architecture Tools, featuring QPR Software as a new vendor. October: Two QPR customers, Laguna Verde Nuclear Power Plant (Mexico) and Dubai Airport Freezone Authority (United Arab Emirates), are selected among the 2014 winners of the Palladium Balanced Scorecard Hall of Fame for Executing Strategy Award. November: QPR Software wins the tender for the enterprise architecture training service for the Finnish public sector. December: Erdemir Group decides to expand the use of its strategic and individual performance management solution to all its office employees. 1 QPR Software Plc 2014

4 2014 key events and strategy Our strategy and its execution WE PROVIDE INSIGHT TO OUR CUSTOMERS BUSINESS OPERATIONS QPR Software s mission is to make customers agile and efficient in their operations. Our value proposition is as follows: We provide insight to our customers business operations through modeling, analyzing, measuring and performance monitoring. This insight enables customer organizations to streamline and improve business operations and to execute their strategies swiftly and effectively. We innovate, develop, sell and deliver to international markets software and services aimed at operational development in organizations. We offer customers innovative and efficient tools to model and measure all layers and dimensions of operations in organizations, to discover and monitor any processes based on actual event data and to analyze causes for potential performance problems. Our business We innovate new software and services aimed at operational development in organizations, and develop further our products and services already entered into commercial markets. We have strongly renewed our software product portfolio in recent years. Out of our four software products in the markets, we have launched two in recent few years. Furthermore, we have launched several new service products to the markets. Our target is an approximately 15% annual organic and profitable growth, on the average, in In our home market Finland, we sell and deliver software and services mainly directly to our customers. In process and enterprise architecture modeling software we are a local market leader with approximately 50% market share. Process analysis and monitoring (in some research referred as automated business process discovery ) is a new software product category in this category we target significant growth for our innovative software. We are a clear local market leader also in this category, and among the most advanced companies in the world developing software for this domain. Our current solution sales focus is on SAP order-to-cash process analysis. Operational development consulting is significantly larger and more fragmented market than the respective software market. We have grown significantly in recent years in this market as a management consultancy provider. We still see growth potential in this market and will strengthen our consultancy resources during this year. We are also a local SAP partner in Finland, and offer services that improve implementation of SAP enterprise resource planning processes. In international markets, the majority of our software sales is executed by our reseller network, extending into more than 50 countries. Our reseller partners offer in their respective markets, in addition to our software, related technical and management consultancy services. Our own earnings logic in international markets is based almost exclusively on software sales. We aim to grow international software net sales by expanding our reseller network, especially for our new software products. For our modeling and monitoring software products, we are looking for reseller partners to build scalable solution business with us in their home markets. Solution areas based on our off-the-shelf software include quality management, Lean, risk management, process and enterprise architecture, people performance management, strategy execution planning and monitoring, as well as Balanced Scorecard. In process analysis business, we make significant outlays to grow international sales. An important target group in reseller recruitment are companies who have an extensive customer base of SAP running companies. The solution developed by QPR offers significant customer benefits in discovering, analyzing, problem root cause detection and continuous monitoring of SAP order-to-cash processes. For our resellers we offer, in addition to software sales commissions, an attractive opportunity to significantly grow consulting business in their own markets. Through our innovative offering, they gain an opportunity to differentiate from competition that is using traditional methodologies and tools. Our values are Long-term success together, Reliability and Respect. They define our operating culture and thus create a foundation for our future success and growth. In our own operational development, we focus on ensuring that our personnel competences and organizational capabilities enable us to execute our strategy and reach our targets. To enable this, we design and deploy our internal operational development model, invest in trainings, further develop supervisor and leadership skills and build attractive employer image. 2 QPR Software Plc 2014

5 Review by the CEO Review by the CEO In 2014, the Company s software net sales growth accelerated towards the end of the year and reached 13% for the full year, despite the continued challenging market situation. In the fourth quarter, net sales from both software licenses (+54%) and software rentals (+15%) grew significantly from the previous year, while net sales from maintenance services grew slightly (+4%). The strong growth in software license net sales was attributable to excellent new sales in international business. The development in software sales shows that QPR s software for operational development is in great demand even at economically challenging times. In the tightening competitive environment, there is an increasing demand for tools to drive profitability and operational improvement initiatives. Also the Company s consulting business developed positively in the latter part of the year, and net sales grew by 12% in the last quarter. Our order backlog continued to increase and our market position strengthened during late 2014, especially in the public sector. Our target is organic and profitable growth. Thanks to our new software products and strengthening service offering, we are in an excellent position to reach this target. The biggest opportunities for software sales growth lie outside the borders of our home market Finland, and thus we are strengthening our outlays for growth in the international sales channel. In 2014, our operating profit nearly doubled compared to the previous year. In 2015, we estimate our net sales and operating profit to increase further. Also in the longer term, we aim for profitable growth. Our target is an approximately 15% annual organic and profitable growth, on the average, in The development of our software and service offering continued as planned in During the year, we released new versions of all our software products. Furthermore, we continued to invest in developing and productizing our operational development services based on enterprise architecture. The results were visible in the strong net sales growth of these services. I would like to thank all our customers and personnel for their excellent collaboration and for the successful year 2014 Jari Jaakkola CEO 3 QPR Software Plc 2014

6 QPR Software Board of Directors Board of Directors QPR Board of Directors had 12 meetings in 2014 (13). The average attendance percentage in meetings was 94 (96). The Board of Directors made a self-assessment of its operation. The Board has not established any committees. Chairman of the Board received an annual emolument of EUR 25,230 and a member an emolument of EUR 16,820. No separate meeting fees were paid. Vesa-Pekka Leskinen b Member of the Board since July Chairman of the Board since January Mr. Vesa-Pekka Leskinen is the Chairman of the Board of Kauppamainos Oy and was the CEO of Kauppamainos from 1979 to September He is the majority owner of Kauppamainos Oy. The main area of business of Kauppamainos has been investor relations and communications, in relation to which Kauppamainos has designed and delivered nearly a hundred annual reports of various companies, participated in the preparation of tens of equity issues, and have been supporting the IPO process of more than ten companies. Mr. Leskinen has personally been involved in carrying out the investor relations and communication of public listed companies. Vesa-Pekka Leskinen is also the founder of Quartal Oy and was the majority owner of the company until Quartal Oy is focusing on developing and delivering computerized delivery solutions and communication services, especially for the stock market and the companies having business therein. In addition, Vesa- Pekka Leskinen is the Chairman of the Board of Directors of Vianaturale Oy (as of May 2014, earlier member as of October 2006). By education Mr. Leskinen is an undergraduate and has an MAT degree. Mr. Leskinen held 851,400 shares of QPR Software Plc at December 31, Kauppamainos Oy, whose majority owner Mr. Leskinen is, held 475,170 shares of QPR Software Plc at December 31, Kirsi Eräkangas b Member of the Board since March Independent member. Mrs. Kirsi Eräkangas is the Chairman of the Board in TLD Registery Limited and member of Board of Directors in Benemen Finance Oy, Nuuka Solutions Oy, Oy Free Drop Innovations Ltd and Vahanen International Oy. She is owner of Nomadi Oy, an invest- ment and development company co-operating with several IT start-ups. Kirsi Eräkangas is a one of the co-founders of the publicly listed software company Basware Corporation. Basware is the global leader in providing purchase to pay and e-invoicing solutions. Eräkangas had a central role in developing Basware s business, and she held several executive positions Her latest operative responsibility covered Basware s professional services globally. She was Basware s board member , latest as the Vice Chairman. Earlier she has been a member of Board of Directors of Finpro ry ( ), Biocomputing Platforms Ltd (2014 and ) and Softability Oy ( ) as well as a member of the Board of Directors ( ) and Chairman of the Board ( ) of Nervogrid Oy. She was a member of the Board of Directors of Nobultec Ltd in 2008, a company acquired by QPR Software in 1 August, 2011, and the Chairman of the Nobultec Board during Mrs. Eräkangas is also a member of the Finnish Association of Professional Board Members. Kirsi Eräkangas holds a M.Sc. degree in Economics and EMBA degree. Mrs. Eräkangas held 7,000 shares of QPR Software Plc at December 31, Jyrki Kontio b Member of the Board since March Independent member. Mr. Jyrki Kontio is an entrepreneur in his own consulting company R & D-Ware Oy. He is a member of Board of Directors in Klevu Oy and R & D-Ware Oy Previously, he was Professor of Software Product Business at the Helsinki University of Technology in Prior to this assignment, Kontio worked for 15 years at Nokia Corporation, serving in various software and process management leadership and research positions. He is an active investor in several start-up companies. Mr. Kontio has a M.Sc. degree in Business Administration and a Doctor s degree in Technology. 4 QPR Software Plc 2014

7 QPR Software Board of Directors QPR Software Plc s Board of Directors (from left)): Kirsi Eräkangas, Jyrki Kontio, chairman of the board Vesa-Pekka Leskinen and Topi Piela. Jyrki Kontio did not hold any shares of QPR Software Plc at December 31, Topi Piela b Member of the Board since March Independent of the Company. Mr. Topi Piela is the CEO of Balance Capital Oy, deputy to CEO of Ulkomarkkinat Oy and a member of the Finnish Association of Professional Board Members. Mr. Piela is the Chairman of the Board of Coptersafety Oyj and member of the Board of Directors of Etera Mutual Pension Insurance Company, JJPPPT Holding Oy and Asuntosalkku Suomi Oy. He is also a member of the State Pension Fund and YLE (the Finnish Broadcasting Company) Pension Fund investment committees. Earlier, Topi Piela served as the Managing Director of Finvest Oyj and Amanda Capital Plc, after which he assumed a position in the Board of Directors of Amanda and worked also as a chairman. Piela s previous positions include Investment Director at Ilmarinen Mutual Pension Insurance Company, Managing Director and co-founder of Arctos Rahasto Oy, and Securities and Investment Director of Ålandsbanken Ab. He has also served on the investment committees of several Finnish and European private equity funds. Topi Piela has earlier been member of QPR Software Board of Directors during Mr. Piela has a M.Sc. degree in Economics and has CEFA and Advanced Insurance Examination diplomas. Mr. Piela held 1,052 shares of QPR Software Plc at December 31, Ulkomarkkinat Oy, whose Deputy to CEO Mr. Piela is, held 1,657,986 shares of QPR Software Plc at December 31, QPR Software Plc 2014

8 QPR Software Executive Management Team Executive Management Team Jari Jaakkola b Chief Executive Officer since January Member of the Executive Management Team since August Mr. Jari Jaakkola worked from August 2006 to January 2008 as Senior Vice President, Business Operations at QPR Software Plc. Jari Jaakkola s previous experience covers leadership positions in Sonera Corporation and Metsä Board Corporation. His past roles include lead responsibilities in large international equity and finance operations, investor relations, strategic marketing and brand management as well as in corporate communications and corporate affairs. Mr. Jaakkola holds a B.A. degree in journalism from Tampere University and an MBA from Henley Business School (United Kingdom). Mr. Jaakkola held 237,000 shares of QPR Software Plc at December 31, His 100% owned company Value FM Ltd held 9,550 shares of QPR Software Plc at December 31, Maija Erkheikki b Vice President, Reseller business since January Member of the Executive Management Team since January Mrs. Maija Erkheikki is responsible for the international reseller business and globally for the software consulting business as well as customer care & support. Before joining QPR she worked as a consultant and was employed by a QPR reseller partner. At QPR she started as a senior consultant training reseller partners and implementing solutions for Finnish customers. Since August 2006 she was based in California and supported US reseller partners and implemented solutions for the US customers. Starting July 2007 she was in charge of channel sales and developing the distribution channel in the US. Year 2008 she worked as Vice President, Channel Sales Europe and Americas. From January 2009 to June 2010 Maija Erkheikki worked as Vice President, Services and Solutions. Maija Erkheikki holds a Master s degree in Industrial Engineering and Management. Maija Erkheikki held 2,000 shares and her spouse 22,500 shares of QPR Software Plc at December 31, Matti Erkheikki b Senior Vice President, Process intelligence business since January Member of the Executive Management Team since July Mr. Matti Erkheikki is responsible for the global delivery of QPR process intelligence solutions, selling them in the Finnish market, developing an international process intelligence solution sales channel as well as for selling and delivering SAP solutions in the Finnish market. Matti Erkheikki has been employed by QPR Software since February Initially he worked as a consultant implementing QPR solutions globally. Since August 2005 he worked as a Business Development Manager and since July 2006 as the Regional Vice President of USA and Canada for QPR's Californiabased subsidiary QPR Software, Inc. From July 2007 to December 2014 he has was responsible for QPR's business operations in Finland and also for the global OEM business. Matti Erkheikki holds a Master s degree in Industrial Engineering and Management. Matti Erkheikki held 22,500 shares and his spouse 2,000 shares of QPR Software Plc at December 31, Pauli Leppänen b Chief Financial Officer January 2013 April Member of the Executive Management Team January 2013 April risk management. Mr. Pauli Leppänen was responsible for the Group's finance until the end of April Additionally he was responsible for holding QPR s insider register and monitoring the compliance with Insider Guidelines, as well as coordinating and reporting on the Group s internal controls and 6 QPR Software Plc 2014

9 QPR Software Executive Management Team Before QPR Pauli Leppänen has worked as a Partner in Sagacitas Finance Partners Oy and as an independent consultant ( ), as SVP, Head of Corporate Control and acting CFO at TeliaSonera AB ( ); in Sonera Corporation as VP, Head of Corporate Control ( ) and Senior Controller International Accounts ( ); as Head of Corporate Accounts at Outokumpu Oyj ( ); and as Business Segment Controller at Outokumpu Technology Oy ( ). He has undergraduate studies in Aalto University, School of Business. Pauli Leppänen did not hold any shares of QPR Software Plc at December 31, Päivi Martti b Chief Financial Officer since May Member of the Executive Management Team since January Ms. Päivi Martti is responsible for the Group's, finance, human resources and administration. Additionally she is responsible for holding QPR s insider register and monitoring the compliance with Insider Guidelines, as well as coordinating and reporting on the Group s internal controls and risk management. Päivi Martti has worked as the Chief Financial Officer in QPR from November 2009 to January 2013, and as Acting Chief Financial Officer in QPR from May 2008 to August Before joining QPR, she has worked as the CFO in Holiday Club Resorts Oy. In addition, she has held several financial management leadership positions in Sonera Corporation, Sanitec Oyj and Oy Gustav Paulig Ab. Martti is a graduate from Commercial Institute and has a degree from the Institute of Marketing. Päivi Martti did not hold any shares of QPR Software Plc at December 31, Jaakko Riihinen b Senior Vice President, Products & Technology since August Member of the Executive Management Team since June Mr. Jaakko Riihinen is responsible for the Company s software product portfolio, product strategy, product management and product development. He has a more than 30 years experience in ICT business. Before QPR he worked in Nokia Siemens Networks as the Head of Research & Development at OSS Business Line as well as in the company s restructuring program. Prior to this, in , he worked as Director, Enterprise Architecture in Nokia and Nokia Siemens Networks. Jaakko Riihinen held several managerial positions in Nokia , and was the CEO of AmbraSoft Finland Ltd Jaakko Riihinen has undergraduate studies in Engineering, at Aalto University School of Science and Technology. Jaakko Riihinen held 30,000 shares of QPR Software Plc at December 31, QPR Software Plc 2014

10 Report of the Board of Directors 2014 Report of the Board of Directors 2014 Highlights in 2014: Net sales EUR 9,541 thousand (2013: 8,688). Net sales increased 10% mainly due to an increase in software net sales. Software net sales grew 13%. Recurring revenues (software rentals and maintenance services) increased 7% and were 52% of total net sales (54). Software rental net sales increased 15%. Operating profit EUR 1,095 thousand (578), operating margin 11.5% of net sales (6.7). Cash flow from operating activities EUR 1,617 thousand (1,661). Profit before taxes EUR 1,065 thousand (554). Profit for the year EUR 890 thousand (521). Earnings per share EUR (0.043). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.05 per share be paid to shareholders for the financial year 2014 (2013: 0.04) BUSINESS OPERATIONS QPR Software s business operations consist of software and consulting services sales. The Company reports income for products and services as follows: software license sales, software maintenance services, software rentals, and consulting services. QPR reports the following operating segments: Direct and OEM business (software license and rental sales, maintenance and consulting services sales to direct customers and OEM customers) and Resellers (software license and rental sales, maintenance and consulting services sales through resellers and the Russian subsidiary). The software maintenance services relate to contractbased customer support and software updates. The international customers represent approximately 60% NET SALES Net sales in 2014 were EUR 9,541 thousand (8,688) and increased 10% from the previous year. The main driver for this increase was the software business, which showed strong growth especially in license sales. Growth in consulting net sales also accelerated towards the end of the year. The economic growth was weak in most markets. On the other hand, the downturn in economy initiated operational development projects in several organizations, increasing demand for modeling, analysis and measurement software as well as related services. QPR s market position was strengthened thanks to its broadened offering in the international software market and also in the domestic market for operational development services. Software license sales developed positively throughout the year (+42%). The development was positive especially in Sweden, Turkey, and Indonesia and in the United Arab Emirates. and the Finnish customers approximately 40% of software maintenance service net sales. The software maintenance service net sales increased slightly in The software maintenance service net sales were negatively impacted by the termination of a long-term agreement by the Company s largest maintenance customer at the end of June Rental net sales of the Company s software have grown strongly already for several years. The growth (+15 %) continued also in 2014, although the company has moved the focus in new sales from software rentals to software licenses. The share of software rentals in new sales continues to be large in the new sales in the Company s home market Finland. The vast majority of software rentals is based on continuing agreements signed with the customers. Total recurring revenues (net sales from software maintenance services and software rentals) grew 8 % in the fourth quarter and 7% in The share of 8 QPR Software Plc 2014

11 Report of the Board of Directors 2014 recurring revenues was 52% (54) of total net sales in Consulting net sales developed positively in the latter part of the year after stagnant net sales in the first half. Net sales of the Direct and OEM segment grew 11% in 2014, compared to the previous year. The growth was driven by the positive development of enterprise architecture modeling and process analysis software, as well as related consulting services. Net sales of the Resellers segment grew 8% in This was mainly due to an increase in software license sales. The growth was slowed down by the unfavorable business development in Russia. FINANCIAL PERFORMANCE Operating profit The Group s operating profit increased 89% and was EUR 1,095 thousand (578), or 11.5% of net sales (6.7). The Group s operating expenses increased at a slower pace than net sales. Operating profit in the Direct and OEM segment increased from the previous year, due to growth in net sales. Operating profit in the Resellers segment increased from the previous year, mainly due to higher net sales of software licenses. Operating profit for the Resellers segment includes credit losses of EUR 96 thousand (53). Other items in the comprehensive income statement Net financial expenses were EUR 30 thousand (25) in The net financial expenses included foreign exchange losses of EUR 29 thousand (15) in Profit before taxes was EUR 1,065 thousand (554) in Income taxes were EUR 175 thousand (33) in They were partly reduced by an additional tax deduction on research and development activities, valid for years in Finland, which the Company estimates to be able to utilize in the 2014 taxation, in line with the previous year. The growth of EUR 142 thousand in income taxes was mainly due to higher taxable income than in the previous year and due to withholding taxes from previous years charged to expense in the Swedish subsidiary. Profit for 2014 increased 71% and was EUR 890 thousand (521). Earnings per share for 2014 were EUR (0.043). FINANCE AND INVESTMENTS In 2014, cash flow from operating activities decreased slightly to EUR 1,617 thousand (1,661). This was mainly due to an exceptional timing of invoicing in Investments totaled EUR 915 thousand (849) in More than half of the investments were made in the development of software and consulting service products. Net change in cash and cash equivalents was EUR 65 thousand (-35) in 2014 and EUR 129 thousand in the fourth quarter (118). Cash and cash equivalents at the end of the year were EUR 1,426 thousand (1,365). At the end of 2014, the Company had no interestbearing liabilities. At the end of 2013, interest-bearing liabilities were EUR 113 thousand. The gearing ratio was -45% (-44). Current liabilities include received advance payments in total of EUR 1,261 thousand (1,406). Return on investment was 35% (18) in At the end of 2014, equity ratio was 44% (43) and the consolidated shareholders equity was EUR 3,196 thousand (2,871). Return on equity was 29% (18) in PRODUCT DEVELOPMENT Product development expenses in 2014 were EUR 1,847 thousand (1,683), equal to 19% of net sales (19). Product development expenses do not include amortization of capitalized product development expenses. Product development expenses were capitalized for a total amount of EUR 683 thousand (507) in The amortization period for capitalized product development expenses is four years. The amortization of capitalized product development expenses was EUR 396 thousand (277). Product development employed 27 persons (27) at the end of the year, equal to 34% of the total personnel (34). The Company develops QPR Suite product family that consists of the following software products: QPR EnterpriseArchitect, QPR Metrics, and QPR Process- Designer. Furthermore, the Company develops QPR ProcessAnalyzer software product that is focused on process analysis and monitoring. 9 QPR Software Plc 2014

12 Report of the Board of Directors 2014 In January 2014, QPR Software released QPR Suite 2014, which includes the software tools for architecture based operational development, as well as the related supporting methodology. QPR Suite 2014 is available in over 20 languages. In January 2014, QPR Software also released a new version of the QPR ProcessAnalyzer software. Release brings added efficiency to the process analysis with an integrated data extraction. In addition to the most common IT systems, data can now also be extracted directly from databases used by the companies. Automated notifications and process flow animation raise the control and visualization of the process performance to a totally new level. By developing its consulting service products, the Company aims to grow its local business in Finland and to accelerate its international software sales by offering complementary service concepts and solutions to its reseller partners. PERSONNEL At the end of 2014, the Group employed a total of 78 persons (79). Average number of personnel in 2014 was 81 (82) and personnel expenses totaled EUR 6,092 thousand (5,703), equal to 64% of net sales (66). For incentive purposes, the Company has a bonus program that covers all employees. Remuneration of the top management consists of salary, fringe benefits and a possible annual bonus based on net sales and operating profit performance. In 2014, the maximum annual bonus of executive management team, including the CEO, was 60% of the annual base salary. SHARE CAPITAL, SHAREHOLDERS AND SHARES The Company s share capital at the end of the year was EUR 1,359, divided into 12,444,863 shares. The Company has one share class. Each share has one vote and an equal right to dividend. The book counter value of the share is EUR The Company s shares are included in the Finnish book-entry securities system managed by Euroclear Finland Oy. At the end of the year, the Company had a total of 820 shareholders (627). During the year, trading in the Company s shares amounted to EUR 2,752 thousand (587), i.e. an average of EUR 11,278 per trading day (2,302). Trading in shares totaled 2,828,001 shares (624,427), giving an average of 11,590 shares per trading day (2,449). Turnover in shares corresponds to 22.7% of the total shares outstanding (5.0) and the average price was EUR 0.97 per share (0.94). The highest closing price during the year was EUR 1.04 (1.00) and the lowest EUR 0.90 (0.93). At the end of the year, the total market value of the Company shares outstanding was EUR 12,108 thousand (11,183) at the closing price of EUR Own shares The number of repurchased own shares in the public trading of NASDAQ OMX Helsinki Ltd during the year was 37,400. At the end of the year, the Company held 457,009 of its own shares with a total nominal value of EUR 50,271 and a total purchase price of EUR 439,007. Own shares held by the Company (treasury shares) represent 3.7 % of the Company s share capital and votes. The Annual General Meeting on March 13, 2014 authorized the Board of Directors to decide on issuing a maximum of 4,000,000 new shares, to decide on conveyance of a maximum of 700,000 own shares held by the Company, and to decide on acquiring a maximum of 250,000 own shares. The authorizations are in force until the next Annual General Meeting. For the time being, the Company has not used these authorizations. GOVERNANCE QPR Software Plc complies with the NASDAQ OMX Helsinki Ltd Guidelines for Insiders issued on October 9, 2009 and the Corporate Governance Code, effective as of October 1, QPR Software Plc 2014

13 Report of the Board of Directors 2014 The Company s Corporate Governance Statement is available on the Investor section of the Company's website, Further information such as administration of the insider register, the public insider register, list of major shareholders, articles of association, charter of the Board, description of how internal control and internal audit are organized, introductions of the members of the Board and Executive Management Team, summary of the QPR Software Disclosure Policy, and the information published by the Company during the financial year is also available in the investor section. DECISIONS MADE BY THE ANNUAL GENERAL MEETING Following decisions were made by the Annual General Meeting (AGM) on March 13, 2014: The AGM confirmed the Company's financial statements and the Group s financial statements for the financial year 2013, and discharged the Board of Directors and the Managing Director from liability. The Annual General Meeting held on March 13, 2014 approved the Board's proposal that a per-share dividend of EUR 0.04, a total of EUR 480 thousand, be paid for the financial year The dividend was paid to shareholders entered in the Company's shareholder register, maintained by Euroclear Finland Oy, on the record date of March 18, The dividend payment date was April 3, The AGM resolved that the Board of Directors consists of four (4) ordinary members. The AGM elected the following members to the Board of Directors: Kirsi Eräkangas, Jyrki Kontio, Vesa-Pekka Leskinen and Topi Piela. In its first meeting immediately following the AGM, the Board of Directors elected Vesa-Pekka Leskinen as Chairman of the Board. The AGM elected Authorized Public Accountants KPMG Oy Ab as QPR Software s auditor with Kirsi Jantunen, Authorized Public Accountant, acting as principal auditor. The AGM decided to keep the Board members emoluments unchanged. The Chairman of the Board receives an annual emolument in total of EUR 25,230 and other members of the Board receive an annual emolument in total of EUR 16,820 each. The decisions made by the AGM are available in the stock exchange release published by the Company on March 13, 2014, which is available on the investors section of the Company's web site, 11 QPR Software Plc 2014

14 Report of the Board of Directors 2014 MANAGEMENT AND AUDITORS In 2014, the Executive Management Team (EMT) of QPR Software Plc consisted of Chief Executive Officer Jari Jaakkola (chairman); Vice President, Resellers business Maija Erkheikki; Senior Vice President, Direct & OEM business Matti Erkheikki; Chief Financial Officer Pauli Leppänen (until end of April 2014); Director, HR and Administration Päivi Martti (also CFO as of May 2014); and Senior Vice President, Products and Technology Jaakko Riihinen. KPMG Oy Ab, Authorized Public Accountants, acted as QPR Software Plc s auditors, with Authorized Public Accountant Kirsi Jantunen as the principal auditor. SHARES HELD BY THE BOARD AND CEO The members of QPR Software Plc s Board of Directors, the Chief Executive Officer, and persons or entities closely related to them, held a total of 1,581,172 Company shares on December 31, 2014, representing 12.7% of the total number of shares and votes (December 31, 2013: 12.7). The amounts include own holdings, and holdings of spouses, persons under guardianship, and controlled entities. The Annual General Meeting on March 13, 2014 decided to authorize the Board of Directors to decide on an issue of new shares and conveyance of treasury shares held by the Company (share issue), either on one or several occasions. The share issue can be carried out as a share issue against payment or without consideration on terms to be determined by the Board of Directors. The authorization also includes the right to issue special rights, in the meaning of Chapter 10 Section 1 of the Companies Act, which entitle to the Company s new shares or treasury shares against consideration. In the share issue and/or based on the special rights a maximum of 4,000,000 new shares can be issued and a maximum of 700,000 treasury shares can be conveyed. The authorization is in force until the next Annual General Meeting. The Annual General Meeting decided to authorize the Board of Directors to decide on a repurchase of own shares. Based on the authorization, an aggregate maximum amount of 250,000 shares of the Company s own shares may be repurchased, either on one or several occasions. The authorization is in force until the next Annual General Meeting. The conditions of all authorizations of the Board of Directors decided by the Annual General Meeting are available in their entirety on the stock exchange release published by the Company on March 13, 2014, which is available on the investors section of the company's web site, INTERNAL CONTROL Internal control and risk management in QPR Software Plc aims to ensure that the Company operates efficiently and effectively, distributes reliable information, complies with regulations and operational principles, reaches its strategic goals, reacts to changes in the market and operational environment, and ensures continuity of its business. It is the duty of the Board of Directors to monitor the appropriateness, effectiveness and efficiency of risk management and internal control in QPR Software Group. Risk management report covering the risks presented in the Risk Management section is presented to the Board in connection with quarterly financial reporting. AUTHORIZATIONS OF THE BOARD OF DIRECTORS The threat caused by the risks to shareholders is used as a criterion when the Board of Directors evaluates these risks. The Board of Directors also monitors that the Company has defined operational principles for internal control and that the Company monitors the effectiveness of internal control. RISK MANAGEMENT Coordination of risk management and internal control and the related reporting is the responsibility of the Chief Financial Officer. Risk management in QPR Software is guided by the requirements of legislation, shareholders expectations regarding business objec- 12 QPR Software Plc 2014

15 Report of the Board of Directors 2014 tives, and expectations among important stakeholders, such as customers and personnel. Risk management in QPR Software aims systematically and comprehensively to identify risks related to the Company s operations and ensures that risks are managed and taken into account in decision-making. The Company does not have a separate risk management organization, and risk management is part of routine responsibilities throughout the organization. Risk management is developed by constantly improving operative processes in the Company. QPR Software identifies the risks by their materiality: if realized, the risks selected for monitoring would have a material impact on the Company's business operations. QPR has identified the following three groups of risks related to its operations: risks related to business operations, risks related to information and products, and risks related to financing. Property, operational and liability risks are covered by insurance. QPR Software Plc s Management System has received ISO 9001:2008 quality certification covering the Company s all activities, which is audited annually by an external party. Risks related to business operations The following risks are related to QPR Software s business operations: Country risk. The instrument used for measuring country risk is the potential loss of country-specific revenue. Risk is managed by constantly gathering market information and by having a geographically spread business. Customer risk. The instrument used for measuring customer risk is the potential loss of annual customer revenue. Risk is managed by taking good care of every customer and reseller. Service delivery risk. The instrument used for measuring the risk is reclamations regarding the durance and quality of the delivery. Risk is managed by professional and right-timed recruitment and by internal development of project management. Personnel risk. The instrument used for measuring personnel risk is the adequacy of competencies needed for achieving strategic targets. Risk is managed by professional recruitment, professional supervisory work and by securing possibilities for job rotation as well as for learning and growth. Legal risk. The instrument used for measuring legal risk is the estimated combined financial value of all open legal disputes on the Company in Euros. The risk is managed by in-depth knowhow of contractual law, standard terms used in agreements and by performing both ethically and according to the Company values. Number of Strategic and Advanced Partners. The instrument used for measuring the risk is number of partners in both categories. Risk is managed by active new recruitment and by QPR Partner Program. Financial risk. The instrument used for measuring financial risk is forecasted operative cash flow before investments. Risk is managed by following constantly the Company s financial position (cash flow calculation and forecasts). QPR s market and customer risks are mitigated as follows: the Company conducts business in more than 50 countries, both in public and private sectors as well as in several different business verticals. Reasonable credit risk concerning individual business partners is characteristic to any international business. QPR seeks to limit this credit risk by continuous monitoring of standard payment terms, receivables and credit limits. No significant changes have taken place in risks related to business operations during Risks related to business operations in Russia In 2014, QPR monitored the following risks in the Russian subsidiary OOO QPR Software: Country risk. The metric used for measuring country risk was the potential loss of country-specific revenue. Risk was managed by constantly gathering information from political and economic development and by having a customer base that is spread geographically and among different industries. Customer risk. The metric used for measuring customer risk was losing a customer. Risk was managed by good customer care and reseller support. Personnel risk. The metric used for measuring personnel risk was adequacy of competencies needed for achieving strategic goals. Risk was managed by professional recruitment, good supervisory work and by securing possibilities for job rotation as well as for learning and growth. Financial risk. The metric used for measuring financial risk was forecasted operative cash flow. Risk was managed by following constantly the subsidiary s financial position (cash flow calculation and forecasts) and contracts. In 2014, the Company s business in Russia was negatively impacted by the unfavorable development of the Russian economy and the extremely strong exchange rate volatility. The impact of the Ruble s volatility was limited by the small share of the Group s Russian business, less than 2% of the 2014 consolidated net sales. 13 QPR Software Plc 2014

16 Report of the Board of Directors 2014 Risks related to information and products QPR Software has identified the following three risks related to information and products: Risk related to own products. The risk is managed by securing the competitiveness of the Company s offering at all times. The company seeks to ensure the security of products by automated virus prevention. Intellectual Property Rights. The Company s Intellectual Property Rights (IPR) are secured by the confidentiality of the source code. In its new process analysis business, the Company has adopted a more active IPR strategy than previously. As a result of this, QPR filed patent applications in respect of five separate inventions in Finland and the USA in The inventions relate to automated business process discovery based on processing event data. In addition, the Company aims to secure by up-todate contract management and internal training that third-party IPRs are not used unauthorized in QPR products. The Company has a legal expenses insurance. Data security. Data security risks are related to the confidentiality of corporate, insider and customer information. Risk is managed by ongoing internal training, keeping instructions up-to-date at all times, and by good technical protection of the Company s data network. No significant changes have taken place in QPR s information and product related risks during Risks related to financing QPR Software has identified the following two financing risks: Foreign currency risk. The instrument used for measuring foreign currency risk is the realized exchange rate fluctuation and the future outlook for it. The risk is managed by using the Euro as the primary invoicing currency and by currency hedging according to the Company s hedging policy. At the end of the year, the Company had not hedged its foreign currency (non-euro) trade receivables. The company constantly monitors how the open positions of the three biggest invoicing currencies develop. Operative credit risk. The instrument used for measuring operative credit risk is the turnover rate of accounts receivable. Risk is managed by monitoring accounts receivable and by effective collection of overdue receivables. Management of financial risks in 2014 is described in more detail in Note 27. No significant changes have taken place in QPR s financial risks in LEGAL DISPUTES During 2014 and 2013, QPR had no legal disputes. SIGNIFICANT EVENTS DURING THE YEAR In February 2014, QPR Software announced that Gartner Inc., an international ICT research and consulting company, has ranked QPR Software in the best tier used in its report MarketScope for Enterprise Business Process Analysis, with the rating Positive. According to Gartner, the potential customers should consider vendors in this category as a viable choice for their strategic or tactical investments. Gartner evaluated the vendors on the following criteria: product/service, overall viability, market understanding, offering (product) strategy, business model, innovation, and customer experience, with the latter two having a highest weighting. In March, QPR Software and Tieto, the largest Nordic IT services company, signed a cooperation agreement with the aim to offer customers business driven enterprise architecture services for gaining substantial business benefits. QPR Software provides Tieto with QPR EnterpriseArchitect software together with the methodology for business driven enterprise architecture. The agreement enables QPR Software, together with Tieto, to offer customers more comprehensive services, increasing the business benefits that can be gained from enterprise architecture work. In April, QPR Software s corporate performance management tool QPR Metrics was rated as Facilitators in Nucleus Research Corporate Performance Management Technology Value Matrix. Nucleus Research defines Facilitators as companies offering an application that is intuitive and easy to use, driving rapid adoption with limited training requirements. In June, QPR Software announced at the IRMUK Business Process Management Conference in London the release of its new enhanced template supporting QPR Software s enterprise architecture based operational development methodology. The template contains a very pragmatic and business oriented framework linking strategy to business capabilities and their practical realization by organization, processes, and ICT. In August, QPR Software announced that it will deliver a process intelligence solution to a leading European manufacturing group with operations in approximately 30 countries and production in almost ten countries. The solution, to be delivered as a cloud service, will enable the customer to analyze, improve and monitor their global order-to-cash process by using the data that exist in their enterprise resource 14 QPR Software Plc 2014

17 Report of the Board of Directors 2014 planning system (SAP). The solution helps this customer to obtain economies of scale in production units - while facing a market that requires everincreasing flexibility in deliveries. QPR Software estimates the total value of the software and service deliveries to exceed EUR 0.2 million over the next three years. In August, QPR Software announced that Erdemir Group, one of the largest steel producers in the world and one of the largest industrial enterprises in Turkey, has selected QPR Software and Ironman Consulting, QPR s reseller in Turkey, as solution providers for its strategic and individual performance management. Ironman is one of the leading strategic management consulting firms in Turkey. The solution will be powered by QPR Metrics performance management software that enables fast implementation and offers a flexible web based environment for performance management. In December, QPR announced that Erdemir Group expands the use of the solution to all its office employees. In September, QPR Software announced plans to transfer its Russian customer and reseller support functions from Moscow to Helsinki, from where the reseller support to all other countries is already centrally delivered. Russia represents approximately 2% of QPR Software s net sales. The transfer became effective as of January 2015 and is expected to reduce costs slightly, but its impact on financial results is not significant. In September, QPR Software announced the release of its enhanced template for enterprise architecture based operational development methodology. The new version has been enhanced with support for enterprise risk management, application portfolio management and human resource management functions, as well as reports helping the users to distill the relevant knowledge to business or function specific needs and situations. QPR Software s operational development methodology (QPR ODM) already serves a broad range of customers with different needs and situations, such as mergers and acquisitions, business continuity, risk analysis, or technology renewal. In October, Gartner Inc., the world s leading IT research and consulting company, published its report Magic Quadrant for Enterprise Architecture Tools, featuring QPR Software as a new vendor. The decision to add QPR Software to the Magic Quadrant was based on Gartner s evaluation of the QPR EnterpriseArchitect flagship product. In total the report evaluates 13 different providers. In November, the Company announced that it has won the tender for the enterprise architecture training service for the Finnish public sector. The tender was organized by the Government ICT Center Valtori. QPR Software will train the public sector operational development specialists and enterprise architects until In December, QPR Software announced that it has won the tender for the enterprise architecture consulting provider of the Finnish Transport Agency. The agreement period started on December 4, 2014 and runs until December 3, The estimated total value of this consultancy is approximately EUR 0.3 million. In December, Finnish Senate Properties selected QPR as the provider for enterprise architecture consulting. The agreement period is six months, starting as of December After the first agreement period, the agreement can be renewed in six-month periods during The estimated total value of this consultancy in (initial agreement period+ possible renewals) is slightly over EUR 0.3 million. As part of its annual planning process, QPR Software has updated its strategy and the financial targets for years The Company continues to aim for an approximately 15% annual profitable growth by investing in the international distribution of its new software products (QPR EnterpriseArchitect and QPR ProcessAnalyzer) and in the expansion of its consulting business focused on operational development of the customer organizations in its home market in Finland. A summary of the Company s disclosure policy has been published on the Company s web site, at OUTLOOK Operating environment and market outlook The leading market research companies estimate that global IT services market demand grows in 2015 by 2 3 %, compared to The Company estimates that in its relevant markets demand for enterprise architecture modeling, measurement and process analysis software as well as related services will develop faster than the global IT services market. Outlook for 2015 The Company estimates its net sales and operating profit in euros to increase in 2015, compared to The further strengthened position of the Company in its home market provides a good starting point to continue organic and profitable growth. In international markets, the Company s goal is to significantly increase sales of its innovative software products. In 2015, investments will be mainly made in international distribution of innovative enterprise architecture modeling and process analysis software products de- 15 QPR Software Plc 2014